1. How much is the death protection provided by the whole life policy really costing David?
2. How might David figure out whether term protection would be cheaper?
3. What other factors might David take into consideration when deciding between term and whole life?
David Lombard is considering the purchase of a $100,000 face amount, nonparticipating, whole life policy. The life insurance agent tells David that the $100,000 insurance protection really won’t cost him anything. The annual premiums on the policy are $5,000, and at the end of 10 years the surrender value after taxes will be $50,000. Therefore, David can get back all of his premium payments at the end of the 10 years. David decides to make some calculations on his own. He figures that if he deposited $5,000 annually in a savings account that had a 5 percent annual return after taxes, he would have $66,034 after 10 years. He wonders if the insurance policy is really the great deal the agent says it is.